Banks vs mobile wallets: The slugfest begins

Post November 8, two rather jargonistic abbreviations have taken India — urban and rural — by storm. As the ban on old Rs 500 and Rs 1,000 notes came into force, supply of hard cash got throttled and the government started to sing the cashless tune, UPI (United Payments Interface) and USSD (Unstructured Supplementary Service Data) became household buzzwords.

Well, almost. Mercifully, both these contractions are nowhere as complex as they sound — not at least for millions of Indians who can use it via their mobile phones to make payments. UPI is a mobile payments system that allows users to transfer money across banks using their smartphones. Rolled out in August 2016, one can make online purchases and offline payments. All one needs is a bank account.

Sunil Kularni, Deputy MD, Oxigen (July 2004)

USSD opens the door to mobile banking, allowing users to check their balance and get mini statements, along with making payments, even if they don't own a smartphone or have access to the internet. It is not as if these two services are being targeted squarely at non-urban folk. In the capital, Ajay Chaturvedi, a software engineer who likes to consider himself a "Paytm junkie", decided to opt for UPI to buy tickets to the Aamir Khan blockbuster Dangal earlier in the week.

"There is nothing as easy and quick as UPI. UPI may have been a UFO a few months ago, but now it's an identified flying object," he guffaws. Deepak Sharma, chief digital officer at Kotak Mahindra Bank, affirms the prodigious growth trajectory of this flying object. In less than three weeks of its launch in October this year, over 75,000 people have downloaded Kay-Pay — the UPI app of Kotak Mahindra Bank.

"Why would you need a mobile wallet?" wonders Sharma, when UPI provides a single, seamless, interoperable platform where money can be paid to a person or a merchant instantly from a bank account.

Ritesh Pai, Country Head, Digital Banking, Yes Bank"The bank account is the biggest wallet," he says, adding that all that was required was to make it friction-free, and UPI has managed to do it. Sharma contends that banks, armed with UPI and USSD, have solved the four major payments problems encountered by people by offering ease of usage, security, interoperability (works across banks and platforms) and by making payments without a smartphone. Mobile wallets, Sharma continues, are not interoperable, can't be used without internet, and the less said about their security the better.

Ease of use is what wallets definitely provide, but now with UPI as convenient and quick, a shift has begun. "More than 50% of fund transfers for us have moved to mobiles without registering a beneficiary," he says, adding that Kotak Mahindra app has over 80 features. "You can't even imagine 80 applications in a wallet," he grins. Kotak Mahindra is among some 33 private and public sector banks offering UPI either through a separate app or by integrating it in their banking app since UPI went live on August 26, 2016, with Axis Bank.

According to National Payments Corporation of India — the umbrella entity for all retail payments in India — the number of daily transactions on the UPI platform since demonetisation has doubled to 70,000 with 4.2 million registered users. The numbers, though, minuscule when compared with what the largest mobile wallet player, Paytm, claims — 170 million — can soon turn into a tsunami and threaten the wallet players, say experts.

Parag Rao, Country Head, Card Payment Products, HDFC Bank

Early this year, a report by Centrum Broking pointed out that UPI could make mobile wallets redundant. Apart from other benefits, UPI does not require a specific bank account unlike existing wallet players that only offer the product to those who have an account with them. That significantly increases the pool of customers that UPI could tap into, the report said. This is what HDFC Bank plans to do.

The second largest private bank in India, HDFC was one of the last banks to hop on the UPI bandwagon and has quickly added over 3 lakh UPI users since November-end. For the bank, contends its country head of card payment products Parag Rao, taking part in the numbers game as flaunted by mobile wallet players was never a priority. "If the average ticket size of a mobile wallet player is X, our mobile wallet PayZapp does 5X," claims Rao, adding that the numbers show the difference and the depth of engagement that a customer has with the wallet of the bank.

Launched in June 2015, PayZapp claims to have over 5.5 million users. Unlike mobile wallets, HDFC's wallet not only offers comprehensive products, it also allows users to make big-ticket purchases up to the amount they have in their bank account. "Our wallet is not just confined to top-ups or recharges," he says.

As customers get digitally savvy, say Rao, they will prefer to have payment instruments and payment products from their own banks rather than from entities that don't offer banking services. As far as tapping the non-smartphone population is concerned, the bank has seen an over 180% jump in USSD users. Ask him how he plans to take on the more nimble mobile wallet startups that have been reportedly adding one lakh users every day since demonetisation, and Rao offers a reality check: scratch a little more below the surface to get the real picture.

"There are various numbers floating around," he says. "We offer value, not numbers." Demonetisation has hastened the process of change. What would have happened in 12 months is now happening in three weeks, says Rao, adding that UPI is set to see exponential growth over the next few months.

Bipin Preet Singh, Cofounder, Mobikwik (September 2009)

Betting on UPI Adhil Shetty, cofounder of Bankbazaar.com, an online marketplace for bank products, too bets big on UPI. "It has the potential to be a game changer in the digital payments space," he says, adding that in spite of the late rollout of UPI, it has features that can give mobile wallets a run for their money. One key benefit is the transaction limit of Rs 1 lakh per transaction as opposed to Rs 20,000 per month through mobile wallets without KYC and Rs 1 lakh with KYC.There's also the interoperability factor: you can't transact with someone who isn’t using the same m-wallet. Similarly, merchants who aren't on the same platform can’t transact with you. UPI has two levels of security, says Shetty. The first is the app login, and the second is the MPIN which ones needs to confirm to authorise a transaction.

So, even if an unlocked phone falls in the wrong hands, that person would need to break into these two levels. While there is two factor authentication for loading an mwallet, there are no such checks and balances while unloading it. Moreover, if you send money to an incorrectly typed account number, you cannot retrieve it. Mobile wallet players, for their part, point to the huge growth projections. The mobile-wallet market in India, says a recent report by trade body Assocham and business consulting firm RNCOS, is expected to hit Rs 1,51,200 crore by financial year 2022 from just about Rs 150 crore now.

M-wallet transactions in India, the report adds, are likely to grow at a compounded annual growth rate (CAGR) of over 160%to rise from just over Rs 50 crore in 2015-16 to Rs 26,000 crore by 2021-22 on the back of growing usage of smartphones, increasing mobile internet penetration, growth of ecommerce and rising disposable incomes. Market value of m-wallet transactions has grown about 20 times to reach Rs 20,600 crore in 2015-16 from Rs 1,000 crore three years ago.

In terms of average wallet spend for retail as well, the numbers are likely to balloon from Rs 500-Rs 700 before demonetisation to Rs 2,000 - Rs 10,000 in the near term, says the report. Sunil Kulkarni, deputy managing director of India's first mobile wallet Oxigen, is betting big on the Achilles heel of the banks: payments. "Well, a bank is a bank is a bank. Payment has never been their game," he grins.

Started in July 2004, Oxigen has a network of 150 million retailers, 30 million wallet users and claims to be the only wallet player to offer payment solutions, including the Aadhaar Enabled Payment System, RuPay and other cards, UPI and recharges/bill payments under the Bharat Bill Payment System. Kulkarni contends that a mobile wallet has a few USPs that give them an edge over banks.Jitendra Gupta, MD, PayU India (August 2011)

First is l​imited risk. As it is not directly linked to one's bank account, one has got limited exposure in terms of keeping money in the wallet. "So your risk is considerably minimalised," he says. Second, mobile wallet players have the flexibility to innovate as an m-wallet is not on the core banking platform, which is typically designed for services such as fixed and recurring deposit, loans and advances.

"They are not meant for payments," he adds, pointing to the millions of transactions that are being done on mobile wallets. UPI, reckons Kulkarni, is just solving a part of the payment gateway problem faced by users as one doesn't have to load one's wallet. "A bank can never compete with a mobile wallet on the cost of transaction and limited stored value," he says.

Bipin Preet Singh, cofounder of the second largest mobile wallet in India, MobiKwik, too doesn't see banks as a competitor. "I don't see any threat from the banks," he says, as mobile payments is not their core area of expertise. "User interface is highly relevant for a payments company to become successful," says Singh, who claims that MobiKwik has a user base of 45 million, including 10 million added in November and December 2016. Also, the first-mover advantage helps wallet players in getting consumer stickiness and top-of-mind recall.

"Wallets created the habit for digital payments," he says, adding that he is open to collaborate with banks in making digital payments a national phenomenon. Joining Forces Collaboration, and not competition, is what Yes Bank has been banking on.

Deepak Sharma, Chief Digital Officer, Kotak Mahindra BankRitesh Pai, country head, digital banking, maintains that given the rapid pace of innovation and disruption in the financial services landscape, not all innovations can or will happen within the bank. It is advantageous, therefore, to build partnerships with fintech players to capitalise on such disruptive innovations, he adds, pointing out that Yes Bank has over 36 partnerships with leading companies and startups, including Flipkart's UPI wallet PhonePe and Snapdeal's mobile wallet FreeCharge.

"The idea is to collaborate and co-create in non-conflicting businesses," he says. While Yes Bank is the settlement banker for FreeCharge and Flipkart, it offers virtual card and connectivity to Mastercard for close to 4 million FreeCharge users and connectivity to NPCI for 5 million PhonePe users. Yes Bank's strategy, points out Pai, has been to capture the mindshare of customers and then translate that into a growing market share. The partnerships give it tremendous benefit in terms of reaching out to customers.

"UPI and wallets will coexist," he contends. Some financial payments players too are taking a collaborative approach. Take, for instance, PayU, which has partnered with Axis and Yes Bank to drive UPI adoption. Over time, says Jitendra Gupta, managing director of PayU India, banks have realised that independent payment companies are doing a better job when it comes to customer experience and addressing specific gaps in the market.

Abonty Banerjee, Country Head, Digital Banking, ICICI BankThat has led to partnership between banks and payment companies. "The biggest competition is cash, not anyone else," he says. Though Gupta is talking about partnerships, the news of SBI reportedly blocking its users from loading money into Paytm wallet only points to why rivalry between banks and mobile wallet players is likely to intensify in the New Year.